GameSquare Esports Inc., a Canadian gaming and esports company, is pleased to announce the closing of the previously announced acquisition of Reciprocity Corp. (“Reciprocity”), a privately held gaming and esports company headquartered in Toronto, Canada (the “Transaction”).
With the addition of Reciprocity, an established global gaming and esports brand, GameSquare now owns assets in the United States of America, Europe, Asia and Latin America, all large and rapidly growing global markets. The Transaction provides expanded access to important gaming and esports markets by complementing GameSquare’s operations in Europe through the Company’s subsidiary, Code Red Inc. (“Code Red”), The Authentic Esports Agency, with the Gaming Community Network (“GCN”), based in Los Angeles. As further described in a press release dated November 25, 2020, the combination of GameSquare and Reciprocity is expected to significantly increase the revenue profile of the combined entity and to result in a high growth company that generates positive EBITDA in the twelve months following the Effective Date (defined below). Please see the Company’s press release dated January 4, 2021 for more information about the arrangement agreement dated December 31, 2020 that was entered into by GameSquare and Reciprocity in connection with the Transaction (the “Arrangement Agreement”) and the press releases dated January 12, 2021 and February 23, 2021 for more information about the Transaction, which are available on the Company’s profiles at www.sedar.com and www.theCSE.com.
“The esports market offers tremendous opportunity for companies that have the right experience and access to capital, and GameSquare is extremely well-positioned for growth,” said Justin Kenna, CEO of GameSquare. “We have been hard at work integrating Reciprocity and GameSquare in anticipation of the transaction closing so we are confident the team in Los Angeles can hit the ground running. They are experienced, hungry, and motivated to grow GCN as a full-service marketing and media group, and GCN has shown that it can bridge the gap between gaming communities and global brands seeking to reach the lucrative esports demographic. We strongly believe that agencies that authentically connect global brands to gaming and esports enthusiasts are well positioned for meaningful growth as the industry sees increasing marketing spend diverted towards this important new form of entertainment. GCN and Reciprocity’s teams in Asia and Latin America are great additions to our platform as we build a leading international gaming and esports organization. We expect to be able to announce meaningful contracts in the immediate term as GCN deploys capital to accelerate the growth of its business while also ensuring profitability remains a priority.”
“GameSquare and Reciprocity makes strategic sense for a number of reasons, including an immediate gain in scale and expansion of the organization’s footprint to the largest and most important gaming and esports markets,” added David Fawcett, CEO of Reciprocity. “I believe that we have an opportunity to accelerate organic growth while achieving positive EBITDA, which is unique within the gaming and esports industry. The sales pipeline at GCN is robust and gives me a high degree of confidence that Reciprocity can achieve its growth targets and become a business with meaningful market share in a multi-billion dollar industry. Further, I believe that the combination of the two businesses further enhances the Company’s profile which helps to attract top tier clients and talent to GCN, Code Red and to GameSquare.”
The Transaction rationale includes:
On March 16, 2021 (the “Effective Date”), Reciprocity filed articles of arrangement in accordance with the terms of the Arrangement Agreement, which resulted in GameSquare acquiring 100% of the issued and outstanding equity of Reciprocity. As consideration for the Transaction, GameSquare issued 43,749,996 common shares of the Company (“Common Shares”) at a deemed price of C$0.33 per share to certain securityholders of Reciprocity (the “Consideration Shares”). Pursuant to the Arrangement Agreement, certain Reciprocity securityholders also became entitled to receive (i) 5.255 million Common Shares if the Reciprocity business generates a minimum of US$5 million of revenue and US$1 million of EBITDA within 12 months of the Effective Date, and (ii) 9 million Common Shares if the Reciprocity business generates a minimum of US$7 million of revenue and US$1.4 million of EBITDA within 12 months of the Effective Date. The Consideration Shares are subject to a 12-month lock-up period, a third of which will be released every four months following the Effective Date. In addition, the Company has granted 3 million replacement options to certain Reciprocity option holders exercisable for 24 months to acquire an equal number of Common Shares at an exercise price of C$0.40 per option. Finally, the Company has agreed to grant or issue (i) up to 6,168,000 options to certain Reciprocity securityholders exercisable for 24 months to acquire an equal number of Common Shares at an exercise price of C$1.00 per option if certain performance targets of Reciprocity are achieved 12 months and 24 months following the Effective Date, and (ii) up to 3,725,000 Common Shares to certain Reciprocity securityholders if certain performance targets of Reciprocity are achieved 12 months and 24 months following the Effective Date.
The Transaction is an arm’s length transaction for the purposes of the policies of the Canadian Securities Exchange (the “CSE”) and was structured as a plan of arrangement. GameSquare did not pay any finder’s fees in connection with the Transaction. The Company is preparing and intends to make publicly available a business acquisition report (as that term is defined in National Instrument 51-102 – Continuous Disclosure Obligation (“NI 51-102”)) for the Transaction in accordance with the timelines set out in NI 51-102.
With the completion of the Transaction, the Company has satisfied the escrow release conditions pertaining to its $7 million offering of subscription receipts that closed on March 4, 2021 (the “Offering”). The Company has designated March 18, 2021 to be the escrow release date for the Offering, on which: (i) each subscription receipt shall be automatically exercised, without payment of additional consideration on the part of the holder, into one unit of the Company comprised of one Common Share and one-half of one Common Share purchase warrant (each whole warrant, a “Warrant”), and (ii) the net proceeds of the offering shall be released to the Company by the escrow agent.
Each Warrant will be exercisable to purchase one Common Share at an exercise price of C$0.60 for a period of 36 months from the escrow release date, subject to a warrant acceleration right.
The Company plans to use the net proceeds from the Offering to advance business operations in North America and Europe and for general corporate purposes. Please see the Company’s press release dated March 4, 2021 for more information about the Offering, which is also available on the Company’s profiles at www.sedar.com and www.theCSE.com.
About GameSquare Esports Inc.
GameSquare Esports Inc. is an international gaming and esports company headquartered in Toronto, Canada. The Company is seeking to acquire additional assets and entities serving the gaming and esports markets and, more broadly, in sports and entertainment. GameSquare’s acquisition of Code Red, an esports talent agency, provided an initial foothold in Europe through its UK operations. Code Red represents leading on-screen talent, players and influencers and works with leading global brands to develop influencer campaigns and esports marketing strategies.
About Reciprocity Corp.
Reciprocity is a gaming and esports company headquartered in Toronto, Canada and has been operating since 2017. Reciprocity owns three gaming and esports assets: a CrossFire franchise in China that it owns with its partner LGD Gaming, a 40% interest in a League of Legends team that competes in Latin America, and, its wholly owned subsidiary corporation, GCN, a digital media company focusing on the gaming and esports audience based in Los Angeles, USA.
For further information, please contact Kevin Wright, President of GameSquare Esports Inc.:
Phone: (416) 861-2267